/ INCOME TAX

FAQ ON COMPUTATION OF AGRICULTURAL INCOME AS PER INCOME TAX ACT

FAQ ON COMPUTATION OF AGRICULTURAL INCOME AS PER INCOME TAX ACT-

 Do Interest on arrears of rent qualify as Agricultural Income and will this be exempt from tax?

Sometimes, a tenant could slip up on rent or revenue payments (either in cash or kind) and have to pay arrears. If the landlord charges interest on such arrears, the income would not be considered agricultural income, but would be deemed income by way of interest and would, hence, be chargeable to tax. While `rent’ presupposes periodical and pre-determined payment (either in cash or kind), `revenue’ implies a sharing arrangement that depends on the actual agricultural produce. In either case, ownership of agricultural land or interest in such land is essential. Which means, the owners of agricultural land, tenants who are given a sub-lease, and people who are mortgagees of agricultural land, all enjoy tax-free agricultural income.

  1. if agricultural produce is processed to make it marketable at a place other than the agriculture land then amount charged for such processing will be agriculture income or not ?
  2. Any processing done on Agricultural produce to make it marketable is a part of agricultural operations and such amount recovered will be treated as agricultural income only. Say for example trashing of wheat, mustard, etc is part of agricultural operations only and the amount recovered will be treated as agricultural income only no matter processing takes place on the land itself or some other place.

But in certain cases like in the case of tea, coffee, sugarcane where a major processing is being done then some part of the processed produce (tea, coffee & sugar) is taxed as non-agricultural income and rest is exempt as agricultural income.

  1. What if agriculture operation is carried on urban land?
  2. No Matter whether the land is urban or rural agricultural land. If agricultural operations are carried out on land the income derived from sale of such agricultural produce shall be treated as agricultural income and will be exempt from tax.
  1. If any industrial organization grow crops and sale half of the goods as raw material in market and remaining further processed and sold as finish goods what will be the tax treatment?
  2. Agricultural income is exempt from income tax. no matter agricultural operations are done by an industrial organization or an individual.If any industrial organization grow crops and sale half of the goods as raw material in market and remaining further processed and sold as finish goods the income earned on first half of produce which is sold in market as raw material is totally exempt from tax.

The second half of the produce which is further processed in this case scheme of presumptive taxation is applicable. Rule 7,7A,7B & 8 of Income tax rules deals with such type of income. Rule 7A deals with Income from manufacture of rubber, 7B deals with Income from manufacture of coffee and Rule 8 deals with Income from manufacture of tea. . Rule 7 deals generally wich says that in cases in which income is partially agriculture and partially from business the market value of the agricultural produce which has been raised by the assessee or received by him as rent in kind and which has been utilized as a raw material shall be deducted from the sale receipts and will be treated as agriculture income. Remaining will be treated as non agricultural income.

  1. in my agriculture farm I am operating 5 cow in Pune, Maharashtra. this is not by product, only product of milk. So is this income is agriculture income or taxable income? (This milk is sold to dairy product plant in nearest co-op society).
  2. dairy farming is not an agricultural income.
  1. why rent on land treated as agricultural income? what difference is there if the land is in specified area?
  2. Rent received from agricultural land used from agricultural purpose is treated as agricultural income. This is the law.
  1. I HAVE business income of Rs 1,95,000 and agricultural income of Rs 2,95,000. These figures relate to the assessment year 2009-10. How will my tax liability be computed?
  2. Agricultural income is exempt under Section 10(1) of the Act so long as the income is derived from agricultural land situated in India. This income is, however, included merely for rate purposes and rebate is allowed on the same in accordance with the Finance Act. No Tax is payable if total Income of an individual do not exceed 1,50,000/- . The inclusion of agricultural income for rate purposes is only required where the total income exceeds Rs 1,50,000.
PARTICULARS RUPEES
Business Income 5,95,000/-
Agricultural Income 2,95,000
Income Including Agricultural Income 4,90,000
Tax on 4,90,000/- 53,000/-
Less: Rebate on Agricultural Income
(Tax on 2,95,000+ 1,50,000 being basic Exemption) 44,000/-
Net Tax Payable 9,000/-
Add: Education Cess 3% 270/-
Total tax Payable 9,270/-

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